As most traders return from the July Fourth holiday, European and US futures are trading higher today. There is also a lot of optimism among traders that the Biden administration could be rolling back some of the tariffs imposed on China during the Trump era to ease inflation. Higher inflation has created a significant threat to the US economy, and there are higher chances of the US economy falling into a recession. Investors believe that if President Biden rolls back some of the Trump administration tariffs on China, it will positively impact inflation, meaning we could see inflation numbers falling but not significantly.
Two important economic events are taking place this week, and traders are highly likely to focus on them. First, we will get the Fed Minutes which will give us more clarity about the Fed’s think behind their current hawkish monetary policy. Secondly, and more importantly, the US NFP data will be coming out on Friday. Remember, the Fed pays close attention to the US job market, and any significant weakness in the US job market could easily force the Fed’s hand to change the direction of its monetary policy.
Over in Europe, we also have some critical central bank events that the equity traders will be looking at. The Bank of England will publish its latest biannual Financial Stability report. The Stability report will show how well the banks in the UK are, and if there is a recession, a likely scenario, how bad the situation could be for the banks in those circumstances. If the results show that the banks are well-positioned, we will likely see a rally for the British banks. And, if the results show that banks aren’t holding a strong position, we could see traders selling their stock.
Later in the week, we will hear from the European Central Bank, which is set to publish its accounts for its latest monetary policy discussion. Remember, market players have positioned themselves for a potential interest rate. The ECB’s president, Christine Lagarde, has communicated this message well. The big factor which remains very much unknown is how much the ECB will increase interest rates. There are some speculations in the market that the ECB could aggressively front-load its monetary policy and increase the interest by 50 basis points to catch up with other central banks such as the Fed and the BOE. More clarity on the ECB’s thinking on its monetary policy would certainly help the sentiment among investors and traders about holding the riskier assets.
Oil prices are trading higher today, and the price trend shows that the current bull rally for oil prices still has a lot of steam left in it. The reason that we do see the oil prices moving higher today is mainly due to the threat of supply disruption in Norway. Norwegian offshore workers began the strike today, which is expected to reduce oil and gas output by 89,000 barrels per day.
The precious metal gold is trading higher for the second day in a row, mainly due to the weakness in the dollar index. As mentioned earlier, the FOMC Minutes and the US NFP data are the two most important events for the yellow metals, which are likely to bring significant volatility to the price. Looking at the price action, it seems that bulls are losing ground, and all eyes are on the major support level of 1,800. If we see the price dipping below this price level and remain below this price mark, we could see the sell-off picking up more strength.